Friday, May 11, 2007

Stupid Bankers

Stupid Bankers! That's not my description, but the title of an article from the column in today's Wall Street Journal.

The title is an eye catcher because it is based upon a quote attributed to Ken Lewis, CEO of one of the world's largest banks - Bank of America. Here's the quote - "we are close to a time when we'll look back and say we did some stupid things".

Mr. Lewis' quote sounds very similar to one I've heard before from bankers - "the best deals are done in the worst of times and the worst deals are done in the best of times".

We've been in the best of times for some time now - the economy has been steady and growing and the capital markets are throwing money at deals so fast and at rates so cheap it will make your head spin.

Just a few weeks ago, I wrote about the "House of Cards" being created by the flood of capital being invested by private equity, hedge funds and lenders. Add that to a mix of "covenant lite" and "payment in kind" for interest and it becomes more and more clear that the good times may soon come to an end.

When will sanity return to the marketplace? Mr. Lewis of Bank of America believes "we need a deal to go bad, as long as we're not in it." Until there is penalty for making a bad loan, no one will step back for fear of missing out on the fees.

Funny, that's the same sentiment I've been hearing on the street from small business lenders and wrote about in "The Expected Storm of Turnarounds". More and more lenders think a shakeout is coming and a little spilt milk (loan losses) would be a good thing. Just don't spill their milk, thank you.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

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